Sustainable Investing: From Possibilities to Probabilities

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Key Takeaways

The UN Sustainable Development Goals (SDGs) have set an ambitious agenda for where humanity and the planet need to go.

The transition to sustainable capitalism provides a clearer path to economic growth and wealth creation.

Achieving sustainable development will require a healthy, vibrant sustainable investing industry that changes the face of investing, businesses and capital markets.

When I think about the prospects for sustainable investing and sustainable development I am a die-hard optimist when it comes to possibilities but more pessimistic when it comes to probabilities if we remain on our current course.

We need to up our game.

I assume that none of us believe that humanity is so smart or gifted or somehow smiled upon by destiny that global sustainability issues will naturally resolve themselves through new technologies and the inevitable march of progress. To the contrary, we will need to consciously shape a revolution in the way we do business and governance and organize societies if we are to build a sustainable capitalism capable of delivering inclusive growth. We will need a Sustainability Revolution equal in significance to the Industrial Revolution that ushered in the modern period.

This revolution is not inevitable. If you read books like Thinking, Fast and Slow by Nobel laureate Daniel Kahneman, about how humans actually make decisions, you understand that deep-seated cognitive biases often prevent us from making rational choices, as short-term, emotional thinking tends to cloud longer-term, more logical and expansive thinking.

And the task is made more difficult by the current crisis of the public sector.

Increasing numbers of Americans, feeling left behind by globalization, technological advances and political gridlock, have lost faith in established institutions, including the media, corporations and our democratic system of government itself. We are witnessing a profound trust deficit and a breakdown of the Enlightenment consensus around shared ideals and notions of the truth, a belief in science, reason and democratic norms. Instead, alternative facts, a rejection of science and a rejection of truth itself characterize a new tribalism where group identities and grievances replace traditional notions of the common good.

We must nevertheless find a way to transition from an industrial age economy fueled by coal and oil to a sustainable economy fueled by renewable energy, conservation, innovation and new technologies. We must also transition from a global system of haves and have-nots to a more vibrant, dynamic and just global community.

As the UN Sustainable Development Goals (SDGs) make clear, it is not only the existential threat of climate change that we must tackle but other urgent priorities including gender inequality, extreme poverty, and access to education, health care, nutrition and clean water.

I grew up during an era when we expected a vital public sector to lead the way on such matters. The public sector is no longer vital; it is moribund. The private sector – businesses and markets, with some assistance from multi-lateral institutions and NGOs – will need to step into the breach. This is the task of sustainable investing in the coming years – to lead the Sustainability Revolution and usher in a new phase of sustainable capitalism, and to do so without the favorable, forward-thinking public policy environment that would otherwise be optimal.

The good news is that the transition to sustainable capitalism provides a clearer path to economic growth and wealth creation. In the year 2016 alone, employment in the solar energy sector grew 17 times faster than overall job growth in the U.S. economy and accounted for 2% of all new jobs. More Americans now work in the solar industry than for Apple, Facebook and Google combined.1

The bad news is that financial markets are still dominated by short-term traders and the business class is still overly focused on short-term markers that fail to take sustainability concerns into account. Women still face discrimination, unequal pay and other inequities despite overwhelming evidence that advancing gender equality can make companies more profitable and communities more vital. The climate continues to warm.

According to the 2016 US SIF Foundation Trends report, approximately 80% of investments still fail to take into account ESG or sustainability factors. A 2016 UN PRI survey of over 1000 chief executives found that, although 88% agreed that greater integration of sustainability is essential, only 10% cited pressure from investors as one of the top three factors driving them to take action.

This is insufficient. Again, we need to up our game.

All of us should have a sense of urgency about this moment. The SDGs have set an ambitious agenda for where humanity and the planet need to go. To get there – to usher in the Sustainability Revolution – will require a healthy, vibrant sustainable investing industry that changes the face of investing and hence of businesses and capital markets.

In my view, we should publicly commit ourselves to a goal of having the majority of all assets under management, and all investment inflows, integrate ESG or sustainability factors by the year 2030, which is the target period of the SDGs.

Setting a more public goal will incentivize us to work together more collaboratively, to be more innovative and entrepreneurial, and to set a faster pace – which will definitely be required.

We must do everything in our power to assure that sustainable investing ultimately prevails and that sustainable development is ultimately achieved. The task ahead is to turn possibilities into probabilities.

A version of this article originally appeared in the September/October 2017 issue of Green Money Journal

Joe Keefe is President and CEO of Pax World Funds (“Pax”) and President of its investment adviser, Impax Asset Management LLC, formerly Pax World Management LLC, as well as CEO of its majority-owned subsidiary, Pax Ellevate Management LLC. Under Joe’s leadership, Pax has become one of the leading innovators in the rapidly growing field of sustainable investing. He is Co-Chair of the Leadership Group for the Women’s Empowerment Principles, a joint program of the United Nations Global Compact and UN Women, and was honored at the United Nations with the Women’s Empowerment Principles Leadership Award in 2014. Joe has been named by Ethisphere magazine as one of the “100 Most Influential People in Business Ethics” five times, and the Financial Times named him one of its 10 “top feminist men,” for his work helping women succeed in business and beyond. In 2016, Joe was named the University of New Hampshire’s “Social Innovator of the Year” and received the Global Leadership Award from the World Affairs Council of New Hampshire.

Why should you invest in women? Because it’s 2018. Because it’s the right thing to do. Because you want a better world for your daughter. And not least because there is a strong business case for investing in women. Read more

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